If you live in Europe you could be forgiven for thinking that the shale revolution is strictly an American phenomenon. Casual readers could also easily get the idea that low oil and gas prices are driving down US production of shale gas and tight oil and that even there the revolution is over. All these impressions are mistaken.

Shale development in Europe is virtually non-existent. Fracking is banned in France and discouraged in Germany. In Poland, early results have been disappointing while in the UK, thanks to mistakes by the government and the industry, no drilling has taken place for several years. Starting operations in Balcome — a wealthy and vocal community with no economic imperative to give up its peaceful lifestyle was a mistake. Creating great expectations without putting in place either proper incentives or a clear regulatory framework was a serious policy error. There is talk of a few wells being drilled this year but probably only if local objections can be overridden by edicts from Whitehall — a crass process somewhat at odds with the government’s rhetoric about devolving power to local communities. The approach is not likely to win over hearts and minds and may well prove unenforceable in a number of areas. Read more

Organisations, especially those that are doing well, can easily get stuck on narrow views of the future and their own role within it. It can be useful and creative in those circumstances to give people the opportunity to think more widely. One method that I have seen used to great effect is to ask people to imagine the world in 10 years’ time and suggest what might have changed, particularly against the expectations of the conventional wisdom. The process can provide a useful counterweight to long-term forecasts, which tend to do no more than roll forward recent history.

In that spirit, and for the holidays, here are a few stories on the energy sector from the FT in 2025. These are not forecasts — just possibilities. Readers would be welcome to suggest additions to the list.

1. In Moscow, ShellGaz — the world’s largest energy company as measured by its listing on the FTNikkei 250 — announces that it is proceeding with Eaststream3, the latest in a series of export projects from eastern Siberia. Eaststream3 will take gas by pipeline to the rapidly growing cities of northern India. ShellGaz was formed in 2017 through the merger of Royal Dutch Shell and Gazprom and represented the first fruit of the reset of European-Russian relations after the agreed federalisation of Ukraine. Read more

The process of adjustment in the energy market is far from over. After the dramatic halving of the oil price since June there is now every chance that natural gas will follow suit. Indeed the fall has already begun. During December, US natural gas prices fell below $3 per million British thermal units for the first time since 2012. But that is just the beginning.

Two further factors suggest a continued, and worldwide decline in 2015. First, in Europe in particular, gas supply contracts — for instance from Gazprom into Germany — are tied to the oil price. The link is historic and is gradually giving way to direct gas-to-gas competition. But the older, longer term contracts remain in place for now and that means that a radical downward shift in prices will occur through the coming year.

Secondly, after years of uncertainty since the 2011 Fukushima disaster, there are signs that Japan is ready to accept the gradual reintroduction of nuclear power. The initial steps will be small — perhaps just one or two reactors at first. But even that will be sufficient to undermine gas prices in Asia which rose at times to almost $20/mmbtu as Japan was forced to substitute imported gas for nuclear. Each nuclear station brought back online will reduce demand for gas, and just as prices surged in 2011 now they will slip back. A Reuters survey of some serious analysts, including Wood Mackenzie, forecast a fall of up to 30 per cent in Asian natural gas prices in 2015. Read more

In ten days time Nato’s leaders will gather in Wales for their bi-annual summit. There is certainly plenty to discuss at Celtic Manor – Ukraine, Iraq, Afghanistan and of course the continued inadequacy of defence spending which is leaving the military in many countries unable to fulfill all their stated commitments.

But tucked away in one bland paragraph of the draft communiqué now being circulated is a brief reference to energy security. Let’s hope there is substance behind the words.

Energy policy remains strictly a matter for national governments but the risks arise from the fact that many countries are dependent on imports for large proportions of their daily supplies. Forty years ago the risk came from the growth of oil imports and a reliance on Opec suppliers. Now the risk is an interruption of natural gas supplies. Gas has become progressively more important as a source for electricity production and for heating. The US and Canada are well supplied thanks to the development of shale gas, but Europe is not. Indigenous production in the UK and Dutch sectors of the North Sea has fallen sharply and Europe has slipped into a position where 70 per cent of its daily imports of gas come from Russia. Read more

George Osborne in his Budget speech on Wednesday talked, correctly, about US industrial energy costs being half those of the UK. The situation has deteriorated rapidly over the past five years. His proposed response is worth quoting directly:

“We need to cut our energy costs. We’re going to do this by investing in new sources of energy: new nuclear power, renewables, and a shale gas revolution.”

This must be a speechwriter’s joke. A line written in where the content bears absolutely no relationship to reality. New nuclear at £92.50 a megawatt hour will double the current wholesale price of electricity. New offshore wind on the Department of Energy & Climate Change’s own figures, which many feel are too low, will cost more than £120/Mwhr. These are not secret figures. They are well known in the Treasury, as is the risk of generating capacity failing to meet demand. There was no mention of that little problem. Read more

The fate of proposals to reform the Mexican oil and gas industry, now being considered by the country’s lawmakers, matters well beyond Mexico itself. The outcome could reshape the energy sector in a number of important countries. Read more

Oil prices are up to $115 a barrel for Brent crude on the basis of market fears that western governments will not be able to limit their involvement in Syria to a few missile strikes shot from warships located safely offshore and that the Sunni-Shia conflict will spread across the Middle East. The forward market is suggesting that spot prices will go even higher.

Maybe. The western involvement certainly looks ill-prepared and lacking in strategic purpose. The response to what is happening in Syria from the US, in particular, reminds me of the impotent response of the dying Ottoman regime to the gradual collapse of its empire across the Middle East in the years before the first world war. Read more

July promises to be a busy month in Whitehall Place, the home of the UK’s Energy and Climate Change Department. Unfortunately, however, despite the prospect of a flurry of activity it seems as if all key decisions will still be left on hold. Read more

The new estimates of shale gas resources published by IGas, one of the energy companies involved in exploration in the UK, complicate still further the decisions facing the Government on energy. Ed Davey, energy secretary, talks about moving to a point at which power supplies will be almost carbon free. But at the same time civil servants across Whitehall, including some from his own Department, have been asked to produce a paper on the competitiveness of UK energy supplies at a time when US costs are falling dramatically. That will be an interesting piece of work and should be published openly. Read more

The news that Exxon is to build a $10 bn LNG export facility in Texas marks another significant step forward in the story of shale gas and its disruptive impact on the world energy market. Those who want a parallel for the painful process through which so many of the established forces of the industry on one side and the lobby groups on another have struggled to come to terms with the reality of shale gas over the last three years should read John Heilbron’s fascinating book on Galileo. Read more

The energy market is moving on two very different tracks. Oil prices are stubbornly high and gas prices are low, especially in the US, and look set to fall further across the world. The question is when, if ever, will these two tracks meet?

Let’s start with why the oil price at $114 a barrel for Brent remains so high. There is no physical shortage and demand growth worldwide is minimal. The answer lies in fear of what might happen next. The threat of an open conflict between Israel and Iran may have receded but there are enough uncertainties in the market to keep people nervous. Libya is out of control because of the limited international support for the new government following last year’s military intervention by France and Britain. There is continued nervousness about events in Algeria after the terrorist attack last month and concern about the negative effect on investment of the renewed outbreaks of violence in Iraq. Read more

When I first wrote about shale gas in the FT, back in 2011, one very senior oil industry executive told me that I was badly wrong and that shale would never have an impact beyond perhaps a couple of small areas in the US. A year later he did have the good grace to apologise.

Now shale gas is everywhere – from Ukraine, to China to South Africa (those are just the places where major investments were announced last week). There are still those who deny the importance of shale development, but like those who deny climate change they are beginning to look increasingly out of touch. Read more

In the real world, disputes over natural gas production often pit billion-dollar companies against individual landowners. In films, it is the industry’s opponents that command the big battalions.

Promised Land, a fictional account of a gas company’s nefarious tactics, stars and is co-written by Hollywood A-lister Matt Damon, and the supporting cast includes the reliably excellent Frances McDormand and John Krasinski. Read more

If you believe the hype, shale gas will solve many of America’s problems, from high petrol prices to wars in the Middle East. There is no doubt that it will bring huge benefits to the US. However, its role in climate change is misunderstood – and must be dealt with urgently.

There is some cause for optimism, at least from a US perspective. The International Energy Agency concluded recently that America will be the world’s largest gas producer by 2015, surpassing Russia. The US is also leading Europe on climate change. If it had ratified the 1997 Kyoto protocol, America would by now have met its obligations.

I spent the holidays in Wales, dodging the odd shower, and contemplating the potential if someone could invent a technology that, short of massive hydro-power schemes, could convert rainfall into power. Wales would undoubtedly be the Saudi Arabia of rain power.

But Wales may not have to wait for new technology to become an energy producer again. The country looks set to be one of the main centres in the UK for the rapidly expanding shale gas business.

One of the most significant events of 2013 for the energy sector in the UK will be the publication of the next report on shale gas prospects across the country from the British Geological Survey. Well timed leaks of part of the report, which appeared just before the chancellor’s statement in December, have already suggested a significant increase in the resource base available near Blackpool. Read more

The report in the Financial Times on Tuesday that the Chinese government is inviting international companies to directly involve themselves in its plans to develop shale gas could be of huge significance for the global energy market over the next decade and beyond.

China has huge shale deposits, perhaps double the US levels, and as yet zero production. Bold plans to produce 6.5bn cubic metres of shale gas by 2015 and 60bn by 2020 have generally been dismissed as fanciful given China’s limited technical base in shale and the challenges of infrastructure and water supply.

But never underestimate Beijing’s determination. The resistance to dependence on outside sources of supply is as strong as ever. Indigenous resources will be given priority and China is now rich enough to absorb the costs of bringing supplies from the north and west to the cities on the eastern seaboard. Read more

Mitt Romney has given Barack Obama a free pass when it comes to energy and environmental policy. Obama needs only to point to Romney’s energy plan - with its proposed demolition of federal controls on new energy developments and its omission of any mention whatsoever of climate change to claim the votes of the environmental lobby.

Even those most disappointed by the last 4 years can hardly fail to back Obama when the alternative is someone who used his acceptance speech last week to mock Obama’s commitment to the environment and to contrast Obama’s aim of helping to save the earth and the oceans with his own commitment to helping ordinary American families get jobs. But what won’t be said this week at the Democratic Convention in Charlotte is that the American energy outlook for the next four years at least is already very largely set, and won’t be much altered by whoever is elected in November. Read more

Nick Butler

on energy and power

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This blog looks at the relationship between energy and power, plus the global trends and influences on the industry. Nick aims to blog twice a week.

Nick Butler is Visiting Professor and Chair of the Kings Policy Institute at Kings College London.

He spent 29 years with BP, including five years as Group Vice President for Policy and Strategy Development at BP from 2002 to 2006. He has also served as Senior Policy Adviser at No 10, Chairman of the Centre for European Reform and Treasurer of the Fabian Society.

Nick Butler is an investor in, and an adviser to a number of companies and institutions in the energy business. The views expressed are solely those of Mr Butler. This material is not intended to provide and should not be relied upon for investment advice or recommendations. Readers are urged to seek professional advice before making any investment.